Istisna’a :

As noted above, the principle of “gharar” or uncertainty prevents one from selling something that one does not own. The technique of Istisna’a has been developed as an exception to this. Istisna’a is ‘a contract whereby a party undertakes to produce a specific thing that is possible to be made according to certain agreed specifications at a determined price and for a fixed date of delivery’.

Accordingly, the technique is particularly useful in providing an Islamic element in the construction phase of a project, as it is akin to a fixed price turnkey contract. As financing companies do not normally carry out manufacturing, a parallel contract structure will typically be used. The ultimate buyer of the asset will commission it from the financing company, which will institute a parallel contract under which the financing company commissions the asset from the manufacturer. The financing company therefore takes the risk of manufacture of the asset.